From the following particulars, calculate value of goodwill of a partnership firm by applying capitalisation of average profit method:
Total profits from the last 5 years are ₹261000
Capitalisation rate is 20% and the firm has net assets of ₹200000
Answer & explanation
Correct answer: option 2
Average profit = 261000/5 =₹52200
Capitalised value of firm = 52200*100/20 = ₹261000
GOODWILL= Capitalised value of firm- net assets = 261000-200000= ₹61000